Monthly Archives: March 2017

Failure to pass the American Healthcare Act, which was supported by Republican leaders in Congress and President Trump, may have spooked U.S. stock markets last week.

In an article titled, “How To Make Investing Decisions Based On Politics: Don’t,” Nasdaq.com reported controversy over the bill was “raising questions about [Republicans’] ability to focus on and pass policies that the market has been eagerly anticipating, such as tax reform and infrastructure spending.” Financial Times concurred:

“The post-election stock market rally has been largely powered by hopes Donald Trump’s administration would swiftly launch a bevy of aggressive economic stimulus measures, including tax cuts, deregulation, and infrastructure spending. However, Mr. Trump’s difficulty in Congress over the government’s healthcare plan has prompted some reappraisal by investors of the prospect of significant stimulus arriving later this year.”

Financial Times pointed out it’s likely other factors played a role in investors’ decision-making, as well. Some professionals have become concerned about market valuations. About 34 percent of fund managers believe global equity markets are overvalued and 81 percent say U.S. equities are the most expensive in the world, reported Fortune Magazine citing Bank of America Merrill Lynch’s survey of fund managers.

In addition, estimates for corporate earnings have been revised lower for the first quarter of 2017. Take that with a grain of salt, though. FactSet wrote, “In terms of estimate revisions for companies in the S&P 500, analysts have made smaller cuts than average to earnings estimates for Q1 2017 to date…”

Politics is one factor affecting markets, and partisanship may be affecting consumer sentiment. Richard Curtin, chief economist of University of Michigan Surveys of Consumers, said consumers’ expectations about future economic growth were split along party lines in March. “…among Democrats, the Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead.”

We live in interesting times!

“IT AIN’T WHAT YOU DON’T KNOW THAT GETS YOU INTO TROUBLE. It’s what you know for sure that just ain’t so,” wrote Mark Twain.

In 2016, NerdWallet commissioned a survey* to get a better handle on Americans’ thoughts about lying when money is involved. It’s interesting to note which money-saving lies participants found acceptable. The list included:

• Logging on to someone else’s retail or media account to avoid subscription fees (33 percent)• Not reporting under-the-table income to avoid taxes due (24 percent)• Lying about your age or your child’s age to receive a discount at a restaurant or retailer (21 percent)• Lying about annual mileage to lower auto insurance rates (20 percent)• Lying about income on a loan or credit card application (12 percent)• Lying about smoking tobacco to lower life insurance rates (11 percent)

(The number in the parentheses reflects the percent of those surveyed who said the lie was okay.)

The survey found far more men than women believe it is acceptable to tell lies to save money. For instance, 30 percent of men said it was okay not to report under-the-table income to the IRS. Only 18 percent of women agreed. One-fourth of male survey participants thought it was okay to fudge annual mileage to receive lower auto insurance rates, while just 16 percent of female respondents agreed.

Age also makes a difference. Americans who are age 65 or older were far less likely to find financial dishonesty acceptable:

“The survey found that 11 percent of seniors say it is acceptable to use someone else’s paid account for online movies, music, or articles to save on subscription costs, compared with 39 percent of Americans ages 18-64. Just 7 percent of Americans ages 65 and older think it’s acceptable to lie about annual mileage for lower auto insurance rates compared with 23 percent of Americans ages 18-64. Among all of the lies in the survey, the one that gets the most support from those 65 and older is not disclosing under-the-table income to the IRS in order to pay less in taxes – 14 percent say that’s acceptable.”

When it came down to it, “For all questions, retirees had the lowest rates of acceptance of lies compared with students, employees, and the unemployed.”

*The survey included 2,115 Americans, ages 18 and older, and was conducted February 18-22, 2016, by Harris Poll on behalf of NerdWallet. This survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated.

Weekly Focus – Think About It

“I believe that there is a subtle magnetism in Nature, which, if we unconsciously yield to it, will direct us aright.” –Henry David Thoreau, American author

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.

Technical analyst Edson Gould developed a market rule of thumb known as ‘three steps and a stumble.’ It states stock prices may fall after the Federal Reserve (Fed) raises the Fed funds rate three times in a row without a decline, according to Market Technicians Association. [1]

The idea is three increases show the Fed is serious about keeping rates at a relatively high level for a significant length of time. Higher interest rates could potentially mean higher costs and lower profits for businesses. As a result, stock investors may sell shares and share prices may fall. [2]

Last week, with employment and inflation data approaching Fed targets, the Federal Open Market Committee raised rates for the third time, pushing the Fed funds target rate into the 0.75 percent to 1 percent range, reported Financial Times: [3]

“Fed policymakers’ forecasts for growth and inflation remained little changed, with growth tipped to be 2.1 percent this year and next year, slipping to 1.9 percent in 2019. Core inflation is set to be 1.9 percent in 2017 and 2 percent in the two following years. The possibility of looser fiscal policy emerging from Congress has triggered speculation that the central bank will have to further accelerate its rate-rising campaign, but a number of policymakers are insistent that they want to see firmer plans emerging from Congress before making a call on the impact of possible tax cuts on the economy.”

Major U.S. stock market indices finished the week higher, as did most markets in Europe and Asia. [4] MarketWatch indicated Asian markets were encouraged by indications the Fed may not increase rates as often as expected this year, [5] and CNBC reported European markets were boosted by a better-than-expected outcome for mainstream parties in Dutch elections. [6]

I SPY WITH MY LITTLE EYE…ROBOTS! If you take a cruise anytime soon, the bartender may not be able to lend an ear. According to Financial Times, one cruise line has installed robotic bartenders that produce one drink per minute per arm, and can make up to 120 drinks an hour. [7]

It’s not just cruise lines, either. The food industry in the United States is automating. Financial Times described food preparation at a pizza restaurant in California: [7]

“…Pepe squirts tomato sauce on to a pizza base before his colleague Marta spreads it; Noel has 22 seconds to correct any imperfections and add cheese and other toppings, after which Bruno takes the pizza from the line and places it in the oven. But on this production line, only Noel is human. The others – anthropomorphised by name only – are machines conducting tasks usually performed by people.”

The restaurant has 75 human employees who earn about $18.00 an hour. They all are given opportunities to take coding classes so they can better understand and manage robots as well as the artificial intelligence used to evaluate delivery routes. [7]

Then, there is Sally, a robot offered by a food robotics firm. Sally can produce “… fully-customized, fresh, and healthy salads. Sally’s proprietary technology dispenses measured quantities of more than 20 ingredients – refreshed daily – to create a ready-to-eat meal any time of day.” Alternate versions of this robot will offer Mexican and Indian food choices. [8]

Competition for employees is becoming a significant issue in the restaurant industry, reported the National Restaurant Association. More than a quarter of restaurant operators, who participated in a January 2017 survey, said recruiting and retaining employees is the single most important challenge they face – a 9 percent jump from 2015. That’s the highest level since October 2007. [9]

Soon, the attraction for young children at burger joints may be watching robotic characters pull together kids’ meals!

Weekly Focus – Think About It

“There is a point in every contest when sitting on the sidelines is not an option.”—Dean Smith, Former Head Coach, University of North Carolina Tar Heels [10]

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.

Last week’s U.S. employment report was better than expected. The United States added 235,000 jobs in February, which was a few more than economists had forecast.

It may seem counterintuitive, but the positive economic data helped push U.S. stock markets lower. The jobs report was a sign the American economy continues to be strong and indicates a rate hike may be on the horizon. Barron’s reported:

“If anything, the data just confirms what we’ve known for a while now: The economy is growing, and one rate hike is unlikely to do much damage…There’s still a strong likelihood of some sort of economic stimulus plan from the Trump administration sometime this year…But the fact that tax cuts and infrastructure projects are even being considered at a time when the U.S. economy is adding 200,000-plus jobs a month is ‘unprecedented’…”

Federal Reserve (Fed) interest rate hikes affect stock markets because they make borrowing more expensive. Higher borrowing costs may reduce the amounts people and companies spend and affect companies’ profitability and share values.

At the end of last week, CME’s FedWatch Tool, which gauges the likelihood of changes in U.S. monetary policy, indicated there was better than an 88 percent chance of a rate hike when the Fed meets on March 15.

It’s interesting to note investor sentiment has become less optimistic. Last week, the AAII Investor Sentiment Survey showed investor pessimism had reached its highest level since February 2016. Bearish sentiment increased by almost 11 points, finishing at 46.5 percent. That’s significantly higher than the historic average of 30.5 percent. Bullish sentiment fell by almost eight points to 30 percent. That’s below the historic average of 38.5 percent. The AAII survey is often used as a contrarian indicator.

THEY’RE ALL ON THE PRO RODEO CIRCUIT. They all grow corn and soybeans. They all have renowned universities. In addition, according to The Economist, Texas, Iowa, Nebraska, Mississippi, Alabama, and Michigan are likely to experience the biggest increase in tariffs – as a percent of state gross domestic product (GDP) – if and when the North American Free-Trade Agreement (NAFTA) is revised.

Under NAFTA, goods are imported from and exported to Mexico and Canada without tariffs, which are essentially taxes on imported goods. Tariffs typically increase the cost of imports, making them less attractive to consumers. This can help support the market for domestically produced goods and help protect domestic jobs and industries. Currently, the United States sends about $240 billion worth of goods to Mexico, each year, and Mexico sends even more to the United States.

The Economist’s analysis measured potential increases in tariffs, in tandem with the volume of state exports to Mexico, to determine the possible impact on a state’s economy. (The analysis did not include Canadian exports, even though Canada is also a NAFTA participant.) While the effect on the majority of states’ economies would be relatively small, the impact on others could be more significant:

“In 2015, Iowa’s farmers shipped $132M of high-fructose corn syrup to Mexico. Without NAFTA, Mexico would slap a tooth-aching 100 percent tariff on the stuff…Among this group, Texas stands out. It faces an average tariff of only 3 percent, but its exports to Mexico are worth nearly 6 percent of its GDP (compared with 1.3 percent nationally)…Michigan also fits this category. Its exports of cars and parts – many of which end up back in America – would attract tariffs averaging only about 5 percent. But, with such shipments totaling $4.1B, the bill would be painfully large.”

No one yet knows how renegotiating NAFTA may affect any of the countries involved because talks are not expected to begin for several months.

Weekly Focus – Think About It

“Making good decisions involves hard work. Important decisions are made in the face of great uncertainty, and often under time pressure. The world is a complex place: People and organizations respond to any decision, working together or against one another, in ways that defy comprehension. There are too many factors to consider. There is rarely an abundance of relevant, trusted data that bears directly on the matter at hand. Quite the contrary – there are plenty of partially relevant facts from disparate sources – some of which can be trusted, some not – pointing in different directions. With this backdrop, it is easy to see how one can fall into the trap of making the decision first and then finding the data to back it up later. It is so much faster. But faster is not the same as well-thought-out.”–Thomas C. Redman, “the Data Doc”

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.

Major U.S. stock markets were positively euphoric following President Trump’s speech on February 28. Optimism about the new administration’s pro-growth policies propelled the four major U.S. stock indices to record highs, despite a dearth of policy details, reported Financial Times.

It’s hard to pinpoint exactly why stocks have moved so far, so quickly. However, it appears that mom-and-pop investors have become quite enthusiastic about the asset class according to data from JPMorgan Chase cited by Bloomberg. While institutional investors (pensions, insurance companies, etc.) have been reducing exposure to stocks, smaller investors have been loading up on shares.

“Cognitive dissonance exists in the U.S. stock market. S&P 500 is up 10 percent since the election despite negative EPS [earnings per share] revisions from sell-side analysts…Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward. On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017E [estimated] adjusted EPS forecasts by 1 percent since the election and ‘hard’ macroeconomic data show only modest improvement.”

Financial Times reported pessimism prevails in the bond market. One bond market professional said, “The bond market is taking a totally different view from the equity market. Blowing raspberries is a good way to put it…There’s no belief that the growth agenda will be dramatic.”

So, is strong economic growth ahead? Do bond investors or stocks investors have it right? Are institutional investors or mom-and-pop investors positioning themselves correctly? Only time will tell.

DON’T THINK SO! Tax season is upon us. That means we can all use some entertainment. While many folks dread the process of completing and filing taxes, some see it as an opportunity to test the boundaries of the system. Here are a few deductions Americans have taken that have failed to pass muster in tax court, courtesy of Kiplinger.com:

• You cannot deduct the cost of a good night’s sleep. A tax preparer who worked from home escaped to a hotel because her clients were calling in the wee hours of the night and causing her to lose sleep. When she attempted to take a business deduction for the hotel expense, the tax court ruled a good night’s sleep is a non-deductible personal expense.

• You cannot take a theft loss deduction for poor construction. A couple moved into their newly built dream home only to realize the builder had cut some corners. The house had some serious issues, including its foundation. The couple claimed the builder had defrauded them and took a large theft loss deduction. While taxpayers can deduct losses from a home-related theft, shoddy construction doesn’t qualify.

• You cannot take a depletion deduction for bodily fluids. A woman earned $7,000 a year donating blood plasma because of her rare blood type. She took a depletion deduction, claiming “the loss of both her blood’s mineral content and her blood’s ability to regenerate,” wrote Kiplinger. While companies that take coal, iron, and other minerals from the ground can take a depletion deduction, the tax court ruled that individuals cannot claim depletion on their bodies.

• You cannot deduct a business trip if there are no formal business meetings involved. A repo firm sponsored a trip to Las Vegas for its bank customers. The firm’s employees chatted with clients about business on the way to Vegas, but no formal meetings were held. The tax court denied the deduction.

Before you get creative with your taxes, consult with a tax professional.

Weekly Focus – Think About It

“Because of your smile, you make life more beautiful.”—Thich Nhat Hanh, Vietnamese Buddhist monk and peace activist

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.* Past performance does not guarantee future results. Investing involves risk, including loss of principal.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.* Stock investing involves risk including loss of principal.